Chipped (TSM Q1 Guidance)
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) saw a decline in its stock price by 3.3% after providing guidance for Q1 revenue below what analysts had expected.
This news could ultimately be a cause for concern for the tech industry as we approach earnings season. TSM's guidance is an important barometer in determining what to expect from other tech companies. The fact that it was lower than expected has some seeing signs of trouble. Additionally, Samsung's weak guidance adds to these concerns.
As the world's largest contract chipmaker, TSM serves a broad range of end-market applications, with the majority of revenue coming from high-performance computing, smartphones, IoT, automotive, and consumer electronics. Major customers include Apple, AMD, Broadcom, Intel, NVIDIA, and Qualcomm.
Revenues Slipped
Revenue for March fell 15.4% year-over-year to NT$145.41 billion and was down 10.9% from February. While revenue for Q1 rose 3.6% year-over-year to NT$508.63 billion, the monthly sequential decline is a cause for concern, indicating that the quarter ended on a weak note. This is not a good sign for TSM's customers as we head into earnings season.
However, it's important to remember that TSM had warned on its Q4 call in January that it was observing softness entering 2023 in consumer end market demand, and data center-related verticals were also softening. TSM explained that customers were likely focusing on working down existing inventory before buying new product. As such, TSM predicted that semiconductor supply chain inventory would be reduced sharply through 1H23 to rebalance to a healthier level. TSM also expected revenue to decline mid to high-single-digits year-over-year in US dollars in 1H23. However, there were some glimmers of hope, as TSM said it was starting to see initial signs of demand stabilization. It also forecasted the semiconductor cycle to bottom sometime in 1H23 and to see a healthy recovery in 2H23.
Concerned
Investors are concerned that TSM's Q1 guidance may cause the company to turn more cautious on its outlook during its Q1 call on April 20. While some pullback in revenue is expected after TSM's big year in 2022 with revenue jumping 33.5% in US dollars, fueled by a surge in HPC revenue (+59%), strong growth in smartphones (+28%), and IoT (+47%), the guidance was still a bit of a letdown.
Overall, investors need to remember that TSM is an important player in the tech industry, and its guidance is a crucial factor in determining what to expect from other tech companies during earnings season. This news makes us incrementally more nervous ahead of earnings for some big tech names in the coming weeks.
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